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Federal Cabinet cuts floor price of wool; Hon John Kerin questions the competence of the Wool Corporation Board

PETER THOMPSON: The floor price for wool is on the way down. Despite resistance from the Australian Wool Corporation and growers, Federal Cabinet has decided to cut the price to 700 cents a kilogram. The Minister for Primary Industries, John Kerin, will formally detail a plan for the industry, after meeting the Board of the Wool Corporation this morning.

During the recent uncertainty over the floor price, the Wool Corporation has been buying up to 90 per cent of the clip. From Canberra, John Shovelan.

JOHN SHOVELAN: Despite all the debate in the lead-up to last night's Cabinet decision, there was never any middle ground on the floor price. You either supported the industry and the 870 cent floor, or took the Kerin line and supported 700 cents. John Kerin's mind was made up weeks ago, but he wanted to be seen to give the Corporation every possible moment to prove him wrong. They couldn't, and this morning the Board must decide whether to put their pride and egos aside, or risk further damage to the industry. It won't be easy. After all, the grower members of the Corporation's Board have been rolled and the floor price will fall, and Board members who thought their commercial expertise and rescue plans were the way out of the industry problems, have had their solutions rejected by the Minister.

Mr Kerin has already declared his lack of faith in the Corporation's commercial judgment, saying he made a mistake in 1987, thinking the Corporation was strong enough to make fundamental commercial decisions about issues such as the level of the minimum reserve price. Given the Minister's actions and statements in relation to the Corporation's activities, serious questions about the competence of the Corporation in the mind of Mr Kerin, must surely continue beyond today's meeting.

Mr Kerin's plan, which he will detail this morning, is likely to include his own marketing strategy to run down the stocks along with reference to the Corporation's borrowings. For their part, the battered members of the Board will be demanding that the Minister give assurances that now he has forced the issue, he will leave the day to day running of the Corporation in their hands. They are also expected to point out to the Minister that the asset value of their stocks will plummet with the reduction in the floor price, thus reducing the equity of growers in the stockpile, and with disastrous consequences for the Corporation's credit rating, which they proudly claim to be better than the nation's is at the moment.

The Board is also likely to seek guarantees on future levels of borrowings, because even with a reduced floor price and a 20 per cent grower's tax, the level of purchases in the initial period will be substantial. Government guarantees on any additional borrowing will reduce the cost of the Corporation's loans, and with another four selling weeks of the season to go, the Corporation will take heavy losses as it buys at the higher floor price, only to resell after July 1 for the 700 cent floor. Yesterday, the Corporation was buying about 90 per cent of the wool on offer, and while some mills may be getting desperate for stock, you'd have to be a mug to buy now, when there's a 20 per cent price reduction only a few weeks away.

PETER THOMPSON: John Shovelan in Canberra.